Macroeconomics, 2nd Edition by Pearson

SAVINGS, THE BALANCE OF PAYMENTS, AND THE MONEY SUPPLY

35

The

CAPITAL

ACCOUNT

measures the capital outflow and the capital inflow into

the economy. A capital outflow is the purchase of foreign assets by domes-

tic agents such as households and firms. A capital inflow is the purchase of

domestic assets by foreign households and firms.

The

OVERALL

BALANCE

account records the transactions of reserve assets such

as gold and foreign currencies by official government agencies.

The balance of payments is a bookkeeping system that records both sides

of any transaction involving a domestic resident and a resident abroad. A debit

entry ...